Where are mortgage rates headed now?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the Fed meeting, Powell’s remarks and what he expects mortgage rates to do next.   Related to this episode:  https://www.housingwire.com/articles/fed-cut-inflation-mortgage/   To learn more about Trust & Will visit trustandwill.com   The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.

Transcript

00:00Welcome, everyone. My guest today is lead analyst Logan Bodoshami to talk about the

00:10last Fed meeting of 2025. Before we dive in, I want to say thank you to our sponsor,

00:16Trust in Will, for making this episode possible. Logan, welcome back to the podcast on this Fed

00:21day. Wow. You know what? This was a very interesting Fed meeting. It was, they sounded a little bit

00:30confused with the economic message because, you know, on our last podcast, we talked about, you

00:34know, there's a backdrop for growth for next year and the Fed raised its growth projections.

00:43But, you know, the unemployment rate, they kind of didn't say it was going to tick down and,

00:48you know, maybe one cut next year. There was a lot of mixed messages. The bond yields were rising

00:55while the Q&A was going. We were getting to that key level. You know, we don't want to close really

01:01above 418 and have bonds sell off after that. And then Powell dropped the gauntlet. He finally said

01:09it, Sarah Wheeler. He said, homies, Logan was right all along. It was labor over inflation, man.

01:18We were just so behind the curve that we think the jobs data is negative.

01:24That's what he said. Yeah. And, you know, it's interesting. In 2024, my job forecasts were so much

01:34lower than what the numbers were printing. But after the revisions, it looked basically right to me

01:38because I always adjust to population growth and then, you know, where I think we can be. But

01:43this year, as soon as the year started, you know, things just looked weak. And it's never good when

01:52manufacturing jobs and construction jobs are being lost at the same time. I don't care what people say

01:57about population growth. That's never a good sign. But in any case, the 10-year yield, correctly so,

02:06went lower this year, went after Godzilla tariffs, that drama, went lower in a more disciplined fashion.

02:13And we got down here. And I wonder if Powell thinks he made a mistake by sounding hawkish the time before.

02:21Because for him to basically say, you know, we think the jobs data is negative. That's not population

02:28growth. Right. Negative is negative. Right. So when after that, the 10-year yield fell. And, you know, he also

02:38made a statement. We don't think there's any case for us to raise rates or anything like that. We believe the

02:43growth rate of inflation will fall next year as tariffs pass through. We get service disinflation, especially

02:49from rents coming in. But the unemployment rate will stay the same. So there's a lot of mixed messages. But I just

02:57leave off, you know, finally at December, the whole labor over inflation model was finally completed with

03:02the last Fed meeting. And the 10-year yield fell. And we're basically at levels where, you know, again,

03:10even with jobs being lost, Sarah, they are still, now they've taken away the modestly restrictive stance.

03:17We are kind of upper levels of being neutral. So neutral to me looks really about three or three and a

03:23quarter. So you have technically only two more rate cuts in the system under this kind of Fed camp.

03:31And we're here. Right. And that's kind of, it looks, when I take it all together, everything

03:37looks about right with the labor market deteriorating, even though the growth rate of

03:42inflation picked up this year. So huge sigh of relief, right, from the mortgage industry,

03:48not just because like rates are not going up based on what Powell said.

03:52Well, I mean, initially, some people thought it was very hawkish and bond yields were rising. And then

03:58when Powell admitted that they believe the labor data is negative, it just shows that Powell,

04:05Goolsby, Beth Hammock, Beth Hammock should be fired right now from the Cleveland Fed.

04:11Um, Lori Logan, Schmidt, uh, uh, um, the other Fed president, uh, uh, uh, uh, the Atlanta Fed is,

04:19is going to leave. So Bostick, we don't care about it. He's going to retire. Um, there was all these

04:24people who basically simply ignored the labor data and were just making up population growth excuses,

04:29even though the aggregate labor sectors were deteriorating, which if you tie it up to every

04:33economic cycle post-World War II, it would mean the labor market is deteriorating. Well, finally,

04:38finally, at least we got that. Uh, so it, you know, didn't let the 10 year yield. So now,

04:45now that we're in December, we did not get what we saw last year because last year the labor data

04:51wasn't deteriorating like this. It was just getting back to normal. And then of course,

04:55November and December on average, we're averaging over 262,000 jobs per month. Now it's like, okay,

05:01the last four months were 30, 40,000, but we think they're negative, you know, uh, out there. So we

05:07think there's a 60,000 negative revision trend. So there you go. And really, to be honest with you,

05:14the late, the only reason rates are even down here is because we have those, uh, reports that are not

05:18even updated at all whatsoever. So I think that was, that, that was maybe Powell's kind of giving

05:26something to the marketplace, uh, on that. And I think that's, uh, that, that was the right call

05:33to basically admit, Hey, listen, kind of missed this and the unemployment rates rising. And last

05:39year they said the unemployment rate, if it gets above 4.3%, you know, uh, we, we would consider

05:44that deterioration. So you put them all together. It makes sense to where we are right now.

05:48So from your perspective, was he just looking at the, was he looking at, um, the labor data that

05:55we've all been looking at has just come to the conclusion that you've said? They completely blew

06:00it. But my question is, is he coming to this conclusion now because he got more data? What

06:06do you, what do you think? No, they don't have any data. They're just taking the, they're just

06:10taking the negative revision trends. See, this is what Christopher Waller was saying. Christopher

06:15Waller, who should be the next Fed chairman, Christopher Waller, who is team Logan, by the way,

06:21homie said, Hey, listen, the labor market is deteriorating. The housing market is deteriorating.

06:26There's there's the, the revisions are coming quite negative. These are things that usually

06:31happen in a late cycle or in a labor markets. That's deteriorating. Waller was ahead of every

06:37single federal reserve. They should all give Waller like a really good Christmas present

06:41because what if he wasn't there, you know, then the whole federal reserve team would look,

06:46you know, out of the Sarah, you know what they would look like old and slow.

06:51They would look old and slow. So I mean, it's, it's good that there was conflict, but we still

06:58had people, we had Goolsby, Goolsby should be fired dissenting, you know, out here. So again,

07:06it is, it is, it is, it was very, very, it was a, to me, it was a very sophisticated Fed meeting.

07:13Like you really have to be nerdy to read the lines, but it was, it literally the whole thing

07:18turned on a dime when Powell basically admitted that, you know, we probably had negative jobs

07:23reports. And even with negative jobs reports, they are still modestly restrictive or the upper

07:30ends of neutral. There's no discussion about an accommodative stance. They have chef's kiss,

07:37Sarah Wheeler, since 2022. They have followed the model of this federal reserve since they changed

07:43a game plan. Why? Because it was late 2022 that someone spiked the Fed's eggnog and we still

07:50haven't found that criminal, but whoever that person is needs to be found. There needs to be

07:54an award for them, right? That changed the whole game plan. And they literally stayed with it all the

08:00way up to near Christmas, 2025, which is quite remarkable, but they did. They kept it going

08:05throughout this period. Okay. So one of the, uh, the next jobs report comes out when tomorrow,

08:12the next day, December 16th, I think. Okay. So next week comes out next week. Uh, they,

08:17they deliberately put it after this meeting, any chance that you see that that report comes out

08:23and mortgage rates go higher as a result? I mean, if, if Powell is telling people that

08:28they're probably going to be negative, you know, I think a lot of that is, is, is priced in. I think

08:34that's one of the reasons why the 10 year yield went lower, but let's just kind of remember the

08:38last few months, the 10 year yield has been kind of three 95, four 23, 95, four 20 mortgage rates

08:44have been kind of in that range. Why slow dance, Sarah Wheeler. Oh yeah. A little usher, a little

08:50shy, a little Joe to see that slow dance has been right here. And it makes sense with the data

08:56because remember the Fed is still modestly restrictive or upper ends of neutral. However you want to look at

09:02it right now at this point. Um, and, uh, we're just slowly, I mean, if, if they stick to the game

09:09plan, they are slowly moving to neutral policy, which is three or three and a quarter. So in,

09:15in theory, there's only one or two more rate cuts left in this, in this cycle until the labor market

09:20breaks, but labor market, they kind of said jobless claims, man. They're like, man, the jobless claims

09:26data, it hasn't taken off yet. So that's kind of a little puzzling, but that's, that's what we're

09:30looking at. So this is the fourth time in the last few years they've talked about jobless claims is

09:35really what they track. So this is, again, I'm going to say it's positive news as far as I'm

09:40concerned, because last year it took all the way until September for them to do a rate cut and then

09:45rates went higher. Mortgage rates went higher after they cut the Fed funds rate. And you've made the,

09:50the case that like, we have not been able to keep mortgage rates down towards 6% for long enough

09:56to make, you know, to make some inroads. So now, okay, we have another Fed rate cut. Doesn't look

10:02like rates are going to go up as a result. That's good. Yeah, it's good. It's good for the reason

10:07that, you know, you don't want to see, you don't want to see the labor market deteriorating for it,

10:11but there were, there were signs there. Sarah, there were signs there. Waller saw it. I saw it.

10:18Other people saw it. Softening labor market with staying modestly restrictive is a choice,

10:23it's a policy choice. And then Powell said some strange things about the housing market,

10:28which again, to me, to me, they are not authentic housing people, right? They're just kind of the

10:34background watching the stuff, but it is, it is, it is noticing that this, this has occurred that,

10:41that the, the, the last Fed meeting of the year, they finally just said, Hey, we throw up,

10:47give it up. We're a labor overinflation, right? The labor market is deteriorating. It's negative.

10:51Negative is not something where we're okay with. Okay. Given everything you heard today,

10:58where do you think rates are going in the future? It all depends on the labor market. It all depends

11:03on jobless claims. So much is already priced in to mortgage rates with neutral policy. Just to give

11:10everyone an idea, you know in the early part of the century, mortgage rates got to like five and a

11:16quarter, but the Fed funds rate was below 2%. Uh, uh, we were getting out of the tech, uh, recession

11:23then, um, the Fed funds rate neutral policy. There's already price again, like 3% or three and a

11:29quarter, uh, uh, uh, fed funds rates. So we were kind of, we're at the lower part of the, of, of the

11:36forecast because it's really hard to get that next leg through unless the labor market breaks. And this

11:42is why I've always said, I cannot really get below 5.75% mortgage rates with neutral policy. Um, the

11:49spreads could get better and then you could get some softness, but they need to lose this stance

11:54if you want to go much lower below that. So it's jobless claims, right? He basically came out there

11:59and said jobless claims, uh, is what we really track and it hasn't broken yet. So we keep an eye on

12:04that going out in the future. Uh, um, but again, this was it. This was Powell's real last

12:11Fed meeting. Uh, next is going to be Hassett. I know Hassett was making some statements that we

12:17can cut 50. He was right before the Fed meeting. So they're, they're kind of coordinating out here,

12:22but, um, you know, once the next Fed chairman is picked and once that'll happen in May, when

12:30Powell leaves, we'll have a whole different ball game, but if it is Hassett, we're going to have

12:35to take his verbiage for, uh, uh, with a little bit more, uh, um, uh, credence in terms of how we

12:42think the future guidance is going to be, but that, that there's a whole bit of drama when that occurs

12:48because clearly there's some dissenting views out here. Absolutely. Okay. Let's talk about purchase

12:52apps, which we got today as well. Purchase apps down 2% week to week, still up 19% year over year.

12:59The comps are harder, right? I was not expecting, you know, high double digits or single teens,

13:09uh, uh, uh, with the year over year data. So again, it's been the best 18 weeks of the year,

13:16uh, uh, and same model as always when mortgage rates go below 6.64 and head towards six, the

13:22forward looking demand gets better. And as long as there's duration out there and the next positive

13:28week to week will give us that 12 weeks. Imagine that for a year, just imagine that,

13:35that we've now this had this happen a few times in the last three years. We just never been able

13:39to hold it down here. Imagine just holding it down here for a year with everything we know,

13:45you could get a little bit more traction, right? That's all. That's one of the things I've always

13:49tried to say when I'm, when I go on TV and talk on the door, you could get traction, but you can't

13:54get traction if you just go shoot right back up, uh, just 7%. So I think it was good. I think one

14:01of the things that I did like about this is that they raised their growth targets for next year.

14:07And they were just very adamant about there's going to be no hikes. Uh, uh, whatever you think

14:14about inflation, they were really saying there's going to be some disinflation from productivity and,

14:19and, and, and service inflation, that tariffs are going to be a one-off. So, uh, I think the one,

14:24one of the more positive things is that there's nothing about rate hikes or anything like that. So

14:30in that sense, it makes everything much more interesting in 2026, but labor data drove this

14:37labor data is going to be the driver in 2026 and, uh, we'll take it from there, but we're going to

14:42have a whole brand new ball game in 2026 with not only just with Powell's replacement, but also fed

14:47governors. Clearly there are going to be fed governors targeted, uh, uh, uh, next year for

14:53firing. If, if Trump could do that or some kind of rule to make it the job hideous for them to leave,

14:59uh, Bostick's gone. Calger's gone. I don't, Lisa looks, Lisa cooks a dove, so she wouldn't really

15:05match her so much, but I can, I can see Trump just going after fed governors next year now,

15:10uh, with a little bit more, uh, uh, aggressive take.

15:14Well, you know what? It ended up, uh, couldn't, couldn't be better than for your model. And you,

15:19you were like, you know, hopefully Powell doesn't turn hawkish, um, at this point. And he didn't.

15:25No, no, he had the opportunity. It was sounding a little bit hawkish, but I think,

15:30I think a lot of people are just shocked. I mean, as a fed chairman to come after the fact

15:36and say, well, we think the jobs data was negative, you know, and negative is just, you know,

15:41and there are a lot of us that labor market is deteriorating. It's not breaking, but it's not,

15:47you know, so, and you still had dissents. So clearly there's people that are, you know,

15:54okay that they were wrong this whole time. Uh, because there's one thing about population

15:58growth and jobs being created, but there's another thing about negative. And again,

16:02it's just never a good thing when you have manufacturing and construction jobs being lost.

16:07That's just, that's just the way it is. Excellent. Well, Logan, a good result from this

16:12fed meeting. Hopefully that holds. Thank you so much for being on it. We will talk to you again soon.

16:17Pleasure.

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